By: Craig Bowles
Chipotle Mexican Grill (CMG) is slated to report 4Q 2016 earnings after the close of trading on Thursday, February 2nd. Results are expected at approximately 4:10 p.m. ET followed by a conference call at 4:30 p.m. available through Chipotle Investor Relations. Chipotle develops and operates fast-casual and fresh Mexican food restaurants.
Outliers & Strategy
- Earnings Per Share (EPS): The company normally reports a “clean” earnings number. Guidance on January 10th was $0.50 to $0.58. Analyst consensus has been lowered to $0.54 from $0.96. (Source: Yahoo! Finance) Consensus was $1.17 three mths ago.
- Revenues: Company guidance on January 10th was $1.035 bln vs analyst consensus expectations is $1.04 bln.
- Comparable Store Sales: Company guidance on January 10th was -4.8% vs analyst consensus at the time of -3.5%.
- Chipotle’s Price/Sales at 3.3 compares to a 5-year average of 4.5; Price/Earnings of 174.1 compares to a 5-year average of 50.1; Price/Book 8.4 compares to a 5-year average of 9.3; Price/Cash Flow 33.7 compares to a 5-year average of 28.9.
- Analysts view CMG with 10 Buy, 19 Hold, and 6 Sell ratings, according to MarketBeat.com.
- Insiders remain on the sidelines with 48 shares purchased in the last three months and sold a net 73,362 shares in the past year. (source: NASDAQ.com) In May 2016, Chipotle increased a $1.9 billion stock buyback program by an additional $100 million. The company has spent more than $1 billion on share buybacks in the past year or nearly three times the cash generated in the same period.
- Chipotle results could impact other quick service restaurant companies, such as Darden Restaurants (DRI), Yum! Brands (YUM), McDonald’s (MCD) and Starbucks (SBUX).
- Chipotle shares have a 1-day average price change on earnings of 6.55%. Options are pricing in an implied move of 5.66% off earnings.
- 01/17: JPMorgan downgraded Chipotle from Overweight to Neutral due to the stock already pricing in improved estimates that resulted from the company being more operationally focused and technologically current, according to a post on Barron’s.com.
- 01/13: Raymond James reiterated an Underperform rating on Chipotle citing lower-than-expected 4Q comps that were pre-released at the ICR conference turned positive in December but did nothing to change a declining trend, according to a post on Barron’s.com.
- 01/11: CEO Steve Ells knows: Too many Chipotle stores were dirty and had slow service. The company has been training employees incorrectly, according to a post on Barron’s.com.
- 01/11: Maxim would not be surprised to see Chipotle generate a low-to-mid-teen comp increase for January. At this pace, Chipotle’s two-year stacked comp still would be in the negative high teens, according to a post on Barron’s.com.
- 01/10: Chipotle’s earnings will be much lower than analysts had expected in the fourth quarter, because it spent heavily on promotions, and ingredients like avocados got more expensive, according to a post on Barron’s.com.
- 01/05: Wedbush upgraded Chipotle to Neutral from Underperform and suggests a 2018 stock price increase as realistic rather than the 2019 previously thought, according to a post on Barron’s.com.
Chipotle shares reached a $758.61 all-time high on August 5, 2015. The stock got down to $352.96 in October before this current test above the 200-day moving average for the first time in over one year. As with all downside shocks of magnitude, each recovery attempt has to deal with disappointed holders who view every rally as an exit opportunity. Point and figure technicians have a bullish price objective of $511. (Chart courtesy of StockCharts.com)
Chipotle’s preannouncement on January 10th suggested Q4 was much worse than analysts expected but the stock rallied on the news. Year ago numbers were so terrible that comp sales comparisons turned positive in December and probably will be positive again in January. Previous guidance suggested high single digits for 2017 comp store sales. Stock buybacks have increased dramatically in the past year and insiders have been mostly inactive. Recent company guidance is for $0.50 to $0.58 on revenue of $1.035 bln. Estimize consensus for an EPS of $0.70 on revenue of $1.038 bln suggests adjustments to guidance are ongoing and compares to analyst consensus of $0.54 on revenue of $1.04 bln.
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